Operator: Good morning and welcome to Banco del Bajío's Q3 2026 results conference call. My name is Kieran and I will be your coordinator today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance, and financial results. These statements are subject to a number of risks and uncertainties. Please note that this conference is being recorded. Joining us today from Banco del Bajío are Mr. Carlos de la Cerda, Executive Vice Chairman of the Board of Directors, Mr. Iván Lomelí, Chief Executive Officer, Mr. Joaquín Domínguez, Chief Financial Officer, and Mr. Rodrigo Marimón, Investor Relations Officer.
Operator: They will be available to answer your questions during the Q&A session. For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimón. Mr. Marimón, you may begin.
Rodrigo Marimón: Good morning, and thank you for joining us to discuss BanBajío's results for Q3 2026. Today, we will review our quarterly performance and its main drivers, and our outlook for the rest of 2026 and preliminary insights into our 2027 expected performance. The industry data cited throughout this presentation is based on CNBV's information as of August 2026, the most recent publicly available data. Having said this, let's start with the presentation. Moving to Slide 3, Q3 was our strongest commercial quarter of the year and the best Q3 on record since 2017. Total loans grew 16.5% year-over-year to MXN 312 billion, 1.8 times the growth of the banking system, and well above our 11% to 12% guidance. Corporate exposures grew 16%, led by SMEs at 18.6%, which now represents more than a third of our total corporate exposures.
Rodrigo Marimón: More importantly, this growth is translating into market share gains, a strategic milestone for BanBajío. Among the 10 largest banks in corporate lending, we gained the most market share in the first 8 months of the year. This highlights the early success of the corporate growth strategy we launched in 2026. Our national market share in corporate lending reached 6.4% in August, 19 basis points above December, with significant gains in Mexico City and Guadalajara. Net interest income increased 2.3% sequentially and 1.1% year over year, marking its first annual increase since Q3 2024. Importantly, this was achieved despite average TIIE in the quarter being 136 basis points lower than a year ago. Operating expenses were flat sequentially, and the efficiency ratio improved to 43.6%. Total deposits grew 13.1% to MXN 310 billion, ahead of our 10% to 12% range.
Rodrigo Marimón: However, we increased provisions meaningfully during the quarter. Cost of risk reached 1.2% in the quarter, reflecting our decision to act on a limited number of credit cases now rather than over several quarters. For the first 9 months, cost of risk stands at 0.77%, within our guided range. The NPL ratio improved slightly to 1.8%, and coverage remained stable at 99%. We continue to view these cases as idiosyncratic rather than indicative of broader stress within the portfolio. Net income was MXN 1.78 billion for the quarter and MXN 5.9 billion for the first 9 months. Annualized return on average equity was 14.7% for the quarter and 16.3% year to date. Our preliminary capitalization ratio as of September stands at 14.8%, entirely common equity Tier 1 capital. Transparency with the market is part of how we run BanBajío.
Rodrigo Marimón: We believe it is important to provide additional visibility regarding how we currently expect the year to conclude. We now expect loan growth to comfortably exceed the upper end of our guidance range. At the same time, we are taking a more conservative view on fee and trading income, and we now expect those revenues to finish broadly flat year over year against the guided 11% to 13%. As a result, and considering the elevated provisions recognized this quarter, we currently expect net income to be closer to MXN 8 billion and our return on average equity around 16% for the year. I will discuss each of these items in greater detail on the relevant slides. Slide 4 details our loan portfolio. Total loans grew 16.5% year over year and 5.4% sequentially, reflecting a significant acceleration in commercial activity during the quarter.
Rodrigo Marimón: We added MXN 16 billion of loans in 3 months, 1.6 times the increase of Q2. This performance continues to validate the corporate growth strategy we launched at the beginning of the year and is already translating into meaningful market share gains. Throughout the year, we have consistently highlighted the strength of our origination pipeline. During Q3, that pipeline translated into accelerating disbursements, with loan growth increasing from MXN 1.2 billion in July to MXN 4 billion in August and MXN 11 billion in September. As a result, we entered Q4 with strong momentum and a healthy pipeline. One of our commercial priorities this year has been to reduce the traditional seasonality of loan growth. The year-to-date performance reflects meaningful progress, with growth being generated more evenly throughout the year rather than concentrated in the final quarter.
Rodrigo Marimón: In commercial lending, our portfolio grew 16% year-over-year, compared with 9% for the banking system. Year-to-date through August, our portfolio grew 12.1% compared with 5% for the system. SME loans led this growth, up 18.6%, while large corporates grew 14.8%. SMEs now represent almost 30% of our total loan portfolio. SMEs remain our core strategic segment and the area where our competitive advantages are most differentiated, including faster credit decisions, deep sector expertise, and close senior-level client coverage. Growth in government-related lending is entirely attributable to specific structured transactions, which benefit from federal government guarantees. Financial institutions grew 11.1%. Consumer loans rose 12.2% to MXN 8.5 billion, a second consecutive quarter of double-digit growth, while mortgage balances continued their planned runoff, declining 11.9%. Slide seven highlights how our commercial strategy and the aforementioned stronger origination activity is translating into tangible market share gains.
Rodrigo Marimón: Between January and August, BanBajío generated the largest market share gain among the ten largest corporate lenders in Mexico, increasing 19 basis points in just eight months. Most of the gain came from the metropolitan area of Mexico City and Western Mexico. Mexico City remains our largest growth opportunity. Our share there reached 3.4% from 3% just eight months ago in a region that holds close to half of the assets of the Mexican banking system. In Guadalajara, our share rose to 8.3%, up almost 60 basis points over the same period. These results demonstrate that our growth strategy is gaining traction in our expansion markets. We are also seeing encouraging early trends in Monterrey and the northern region. As we continue expanding our branch networks, SME centers, and corporate banking teams, we expect these markets to become increasingly meaningful contributors to future market share gains.
Rodrigo Marimón: Slide six breaks down our corporate portfolio by economic sector. Growth remained broad-based across industries, with no meaningful increase in single name or sector concentrations. Importantly, stronger growth has not come at the expense of underwriting discipline. The slide also highlights our exposure to the sectors most directly affected by the US tariffs and those that could benefit from ongoing bilateral discussions. Steel and aluminum represent 2.2% of the portfolio, while auto parts account for 3.2%, or 5.4% combined. As mentioned in previous calls, agricultural lending accelerated in September, growing 3.1% and reflecting the sector's seasonal pickup in activity. Given the favorable conditions for the sector, we expect growth to continue accelerating in the coming quarters. Turning to slide seven, our asset quality indicators continue to compare favorably with the industry.
Rodrigo Marimón: The NPL ratio stood at 1.8%, slightly below the Q2 and 17 basis points lower than a year ago, compared with 2.3% for the banking system. Our adjusted NPL ratio, which incorporates charge-offs and provides a broader view of portfolio quality, was 2.74%, compared with 4.8% for the system. Coverage remains stable at 99%. In commercial lending, coverage stood at 96%, above the 95% reported by the system. Cost of risk reached 1.2% in the quarter, and for the first nine months of the year, cost of risk stands at 0.77%, within our guided range of 0.7% to 0.8%. The quarterly increase in provisions reflected three main factors.
Rodrigo Marimón: The normalization of the comparison base following the reserve releases in H1, a minor percentage of reserves associated with the strong loan growth, which represented only 9% of quarterly provisions, and our decision to accelerate reserves on a limited number of corporate exposures rather than recognize those costs over several quarters. Importantly, we continue to view these situations as idiosyncratic rather than indicative of a broader portfolio stress. Stage 2 balances declined 19.1% during the quarter. We continue to believe that strong growth and disciplined asset quality can coexist. We expect cost of risk to normalize toward approximately 0.9% in Q4, allowing us to finish the year close to the upper end of our guidance range and enter 2027 having addressed most of these specific situations.
Rodrigo Marimón: Moving to slide eight, total deposits grew 13.1% year-over-year to MXN 310 billion, exceeding our full year guidance range and continuing to provide support for loan growth. Deposits grew 7.7% during the quarter, ahead of loan growth of 5.4%, resulting in an improvement in our loan-to-deposit ratio to 101% from 103% in June. Since 2023, our deposits have grown at an 11.2% compound annual rate against 8.4% for the system. Time deposits grew 19.9% and demand deposits 6.7%. Our cost of funds remains stable at 4.6%, 80 basis points below a year ago, and equivalent to 67.6% of TIIE rate. As loan growth accelerates and the duration of our portfolio gradually increases, our funding strategy is evolving to maintain a balanced asset-liability profile.
Rodrigo Marimón: On 9 October, we successfully issued MXN 7.5 billion of senior unsecured notes in the local market across three and five-year tenors, marking our first market issuance in 80 years. We expect this transaction to support our growth plans through 2027 and believe it marks the beginning of a more active presence in the debt capital markets going forward. Moving to Slide 9, total revenues reached MXN 6 billion, increasing 0.9% sequentially. Financial margin grew 2.3% sequentially and 1.1% year-over-year to MXN 5.3 billion. This marks its first annual increase since Q3 2024, and importantly, was achieved despite average TIIE being 136 basis points lower than a year ago. Loan growth is now more than offsetting the impact of lower interest rates, and net interest income has returned to growth.
Rodrigo Marimón: Fee and trading income totaled MXN 1 billion, declining 1.4% sequentially and 4.8% year-over-year. Competitive pressure remains elevated, particularly in the merchant acquiring and certain credit-related products. While this has affected short-term performance, we believe the current environment is temporary, and we continue to view non-interest revenues as a key pillar of our long-term profitability. The strong pace of client acquisition is expanding opportunities to deepen primary banking relationships and increase cross-selling over time, supporting future growth in fees and commissions. Similarly, lower FX volatility during most of Q3 reduced client activity and affects revenues. The recent increase in peso volatility has already supported stronger activity levels in October and should provide a more favorable backdrop for Q4.
Rodrigo Marimón: As a result, we now expect fee and trading income to finish broadly flat for the year, compared with our original expectation of 11% to 13% growth. Turning to Slide 10, annualized return on average equity was 14.7% for the quarter and 16.3% for the first 9 months. Return on average assets stood at 1.7% and 1.9% respectively, while earnings per share reached MXN 1.5 for the quarter. Based on our current outlook, we expect full-year net income to be around MXN 8 billion and a return on average equity close to 16%. Looking ahead, double-digit earnings per share growth remains our objective for 2027. The strong loan growth we are generating today should increasingly translate into revenue growth across net interest income, fees, FX, and trading revenues. With expense discipline and a normalized cost of risk, the key drivers for earning growth are already in place.
Rodrigo Marimón: On Slide 11, net interest margin stood at 5.3%, down 7 basis points from the Q2. Year over year, net interest margin declined 58 basis points despite an average TIIE rate falling 136 basis points over the same period. As of September, net interest margin sensitivity stands at 18.3 basis points for every 100 basis point change in TIIE rate, equivalent to approximately MXN 746 million of annual revenues and MXN 470 million of annual net income. Importantly, the strong loan growth achieved in 2026 is expanding our earnings asset base. The loans originated this year will contribute a full year of interest income in 2027, supporting future revenue growth. Turning to Slide 12, our efficiency ratio improved to 43.6%, from 44% in the Q2 and compares favorably with the system's 45.1%.
Rodrigo Marimón: For the first 9 months, the ratio stands at 43.9%, comfortably within our 43% to 45% guidance range. Operating expenses were flat sequentially and increased 5.9% year over year. Throughout the year, expense growth has remained within or below guided range despite continued investment in commercial expansion. We have maintained cost discipline while investing for growth. As revenue growth accelerates, this operating base should improve meaningfully operating leverage going into 2027. Finally, on Slide 13, we close the quarter with a preliminary capitalization ratio of 14.8%, composed entirely of common equity Tier 1 capital. Shareholders' equity grew 3.7% in the quarter to MXN 49.2 billion. We are very comfortable with our capital position. During the quarter, we absorbed approximately MXN 16 billion of loan growth in a period of lower capital organic generation, and still increased our capitalization ratio compared with June.
Rodrigo Marimón: We remain approximately 80 basis points above 14% internal threshold and comfortably above regulatory requirements. Before we open the call for Q&A, a final message. BanBajío is growing at nearly twice the pace of the banking system and has generated the largest market share gains among the 10 leading corporate lenders in Mexico, while maintaining the same underwriting standards that have historically distinguished our franchise. Net interest income is growing again, and our costs are under control. This quarter, we choose to address a limited number of credit situations proactively, while the portfolio we are building continues to perform in line with our expectations. Our mandate for 2027 is clear: continue gaining profitable market share, translate that growth into higher earnings, and deliver sustainable value creation for our shareholders. Thank you. With this, I conclude my presentation, and we can open the call to the Q&A session.
Operator: We will now conduct a Q&A session. If you would like to ask a question, please press the raise your hand button located at the bottom of the screen. If you are connected via telephone, please dial star nine. We will remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be given permission to speak. You will then be able to unmute yourself and ask a question. Our first question comes from the line of Pablo Ordóñez. Please state your company name and ask your question.
Pablo Ordóñez: Yes. Hi, good morning. This is Pablo Ordóñez from GBM. Hi, Carlos, Iván, Joaquín, and Rodrigo. Thank you for taking my question, and congratulations on your loan growth figures for the quarter. My question is, how do you expect this faster growth in the SMEs impacting the profitability of the business, particularly for the financial margin and the cost of risk? Seems like in the quarter, the financial margin was running a little bit lower than your guidance at 5.3%. Seems that it was pressured by higher time deposits growth. In the coming quarters, where do you see the financial margin? More strategically, do you see upside to this margin now that you're growing faster on the SME segment? Thank you.
Iván Lomelí: Hi, Pablo. Good morning. This is Iván, and thank you for your question. Well, as we presented, the SME portfolio is actually the portfolio that is growing the highest at almost at a 19% level. We see those level of growth being sustainable. Naturally, the pipeline that we have in Q4 and going forward, it's actually very solid. So we feel comfortable that's going to be maintained. On the NIM part, we're going to have a slight decrease in NIM, and this is going to be essentially related because of the bond issuance that we did recently. Our calculations is that we're going to be below about 4 to 5 basis points based on that effect. But we don't foresee the NIM being compressed significantly going forward. That's going to be dependent on the growth levels of 2027.
Iván Lomelí: Based on how we keep growing, this is going to demand new bond issuance next year to fund growth. But based on that, we believe that with taking into account those effects, it's going to be fairly stable.
Pablo Ordóñez: Thank you, Iván. In the same line of thought, with this faster growth in SMEs, where do you see the cost of risk for the coming quarters, 2027? Do you still think that this cost of risk of around 0.9% and 1% is still achievable, or would you be assuming more risk on your credit portfolio?
Iván Lomelí: We have been very vocal that on the long run, we feel comfortable of a level of 100 basis points of cost of risk. This year, as we have also informed, it has the effect of the provisions that we released based on regulatory requirements. But on the long run, we see this more close to 100 basis points going forward.
Pablo Ordóñez: Perfect. Thank you for the color, Iván.
Iván Lomelí: Thank you.
Operator: Our next question comes from the line of Ernesto Gabilondo. Please state your company name and ask your question.
Ernesto Gabilondo: Thank you. Ernesto Gabilondo from Bank of America. Hi, good morning, Carlos, Iván, Joaquín, and Rodrigo, and thanks for the opportunity to ask questions. My question would be on asset quality. Can you elaborate more on the write-offs of the quarter? What was the percentage of the loan portfolio that was in stage 3, and how has this percentage changed after the write-offs? Also, what was the percentage of write-offs that was related to secured and to unsecured loans? On the secured loans part, which type of industries were related, and what is the probability that you are expecting to recover some of these loans in the next year? Thank you.
Iván Lomelí: Good morning, Ernesto, and thanks for your question. This is, again, Iván. Let me provide some color in terms of the provisions, and this is important to mention because provisions are not related to the growth of the portfolio. The provisions related to assets migrating to stages of higher risk, meaning either stage 2 or 3, represent just one quarter of the total provisions that were made on Q3. 50% of the corporate provisions resulted essentially of methodological factors and regulatory parameters that increase loss severity of the portfolio. This is important to stress. These loans were already in stage 3 before Q3 2026. So this level of growth, this momentum of growth, is not relating to new cases or significant cases migrating to stage 3. Out of these provisions, and this is also important to know, almost 28% are related to consumer and mortgages loans.
Iván Lomelí: They are not related to the corporate or the SME portfolio, which is essentially our focus of growth. In terms of the level of security that we have in stage 3 clients, we have security there between real estate and development banks over 3 times, to be precise, 3.1 times. So we feel comfortable that we are going to be able to recover that in a certain period of time. If you compare that with the actual write-offs, that covers more than 7 times. So the portfolio is heavily secured, and at the end of the day, we feel comfortable that that is going to translate eventually to higher recoveries. In terms of the industries, it is not related to a particular industry. It is a mix. We have some ag assets there. We have some manufacturing there.
Iván Lomelí: But it is fairly diversified, and it is not something that is today a concern in the overall portfolio. It is actually very earmarked in specific cases.
Ernesto Gabilondo: This is very helpful. Super clear. I have another question in terms of the earnings expectations. You have been growing the loan book at a very strong pace. You were also saying that in Q4, NIMs could be under pressure because of the recent debt issued. But how should we think about the earnings momentum next year? You were saying that you are targeting a double-digit net income growth for next year. But when do you think we can start to see that? Can we start to see that in Q1, or where are you having that visibility so we can include that in our models?
Iván Lomelí: With this level of growth, and again, this is important because as we have actually been very vocal to you all, we want to keep growing our asset book 1.2 times the average of the Mexican financial system. That is going to be a long-run objective. With this level of growth, financial margin will be growing next year at double digit. Depending on the growth, and this has to do with, again, with how the market is growing, but this means that that could start happening in Q1 2027. The focus in growth is going to be, again, in the three segments, corporate, mid-market, and PyME. The other important thing is that we are going to be onboarding in 2026, almost 700 new borrowing relationships to our bank.
Iván Lomelí: Next year, we want to actually grow that momentum and be growing at a pace of 1,000 new borrowing relationships on the corporate book. With a cost of risk of 100 basis points and operating expenses under control, we strongly believe that this is going to help the profitability. Again, this is a long-term strategy. We are now growing heavily above market. We want to keep that momentum coming, and based on that, we strongly believe that profitability next year will be in a range between 17% to 18%.
Ernesto Gabilondo: Super helpful, Iván. Thank you very much.
Operator: Our next question comes from the line of Beatriz Chinea. Please state your company name and ask your question.
Beatriz Chinea: Hi, everyone. Beatriz from UBS. Good morning, Carlos, Iván, Joaquín, and Rodrigo, and thanks for the time to my questions. This is one from our side here on efficiency ratio. Besides the loan growth, OpEx was also positive highlighting the quarter as it remained flat-ish sequentially and efficiency improved a bit. Just wanted to check with you if you think there is further room for more improvement on efficiency by the next year. If yes, what should be the main drivers? Thank you.
Iván Lomelí: Good morning, Beatriz, and thanks for your question. We believe that efficiency is going to be maintained at this level. We feel comfortable that we will achieve our level according to our guidance. We strongly have been very diligent in controlling our operating expense, and we will do so in the years to come. So, it will be in a range of not more than 10% year-over-year.
Beatriz Chinea: Okay, thank you.
Operator: Our next question comes from the line of Tito Labarta. Please state your company name and ask your question.
Tito Labarta: Hi, good morning. It's Tito Labarta from Goldman Sachs. Thanks for the time and taking my question. Also, I guess first, just to understand the disconnect on the fee income. Why do you think it was so much lower than what you were initially expecting? Also, the disconnect from loan growth, because you're growing loans very fast. Should there be some benefits as you grow loans on the fee income? Just to think how that should continue to evolve from here. Then also, if you could comment a little bit on the competitive environment. You're growing very fast. Do you think you'll be able to continue to grow at this pace if competition increases, particularly going into 2027? Thank you.
Iván Lomelí: Good morning, Tito, and thanks for your question. This is Iván again. Non-interest income performed below our expectation, and the shortfall was primarily because of two factors. The first one is a greater-than-expected competitive pressure in merchant acquiring and considerably lower foreign exchange volatility during the 9 months of the year. Strategically speaking, in that particular area, I'm more concerned in the number of clients making transactions in our FX platform. I'm going to give you an example. In 2025, we had about 15,100 clients that were using our FX platform. In 2026, the latest figures, we're dealing with almost 17,500 clients in our platform. So, once volatility helps us, and we're going to see that happening in this Q4, we're going to have a tailwind there that is going to improve non-interest income in the last quarter.
Iván Lomelí: In terms of the merchant acquiring business, that represents about one-third of our non-interest income. We see a lot of competition there that has been intensified, not only from traditional banks, but also from fintech and other new participants. This remains a very important service to our clients in the day-to-day operations, but we want to diversify, actually, our sources of non-interest income, and we are going to be focusing heavily on three specific areas in 2027. One is factoring and leasing, the second is trusts and services, and the third one is international banking. Particularly letters of credit, we see a big opportunity there for growth, particularly with the new clients that we have been onboarding during this 2026. In terms of credit competition is everywhere, and it is very heavy, particularly in the macro regions that we are focusing.
Iván Lomelí: We see still a lot of opportunity to grow in those markets, because at the end of the day, we are underrepresented against our fair market share that we have as a bank. We are focusing on the three pillars that we have been very vocal about it, which is, we will maintain a strong commercial activity, senior support with our sales force, and strong execution, streamlining our credit process to be faster in our response time in terms to be delivering faster decisions. We increased our market share 19 basis points, and we strongly believe that we can keep that momentum in 2027.
Tito Labarta: Great. Thank you, Iván.
Operator: Our next question comes from the line of Arnon Shirazi. Please state your company name and ask your question.
Arnon Shirazi: Hi, all. Thanks for the space. It's Arnon Shirazi from Citi speaking here. My question is related to capital allocation with the recent loan acceleration. Should we see any change in capital distribution going forward? Thank you.
Iván Lomelí: Thanks for your question, Arnan. We do not see pressure on capital. On the contrary, this quarter actually demonstrated that the strength of our capital position is there. We actually absorbed more than MXN 60 billion in terms of loan growth during this quarter. We still increased our capitalization ratio compared with Q2. We remain 80 to 90 basis points above our internal threshold of 14%, which we feel very comfortable above regulatory requirements. Our entire capital consists in common equity Tier 1 capital. We believe that current levels reflect a more efficient development of capital and provides us with sufficient capacity to continue supporting profitable growth in 2027. We will maintain our policy of dividend payment from 50% to 40% in 2027.
Arnon Shirazi: Great. Very clear. Thanks.
Operator: Our next question comes from the line of Ricardo Buchpiguel. Please state your company name and ask your question.
Ricardo Buchpiguel: Hi, everyone. Ricardo Buchpiguel from BTG. I have two questions here. I wanted to hear your thoughts on how you are thinking internally about the trade-off between loan growth and profitability when deciding the pace of growth, and particularly if competition increases. I wanted to understand if you would be willing to be a bit more aggressive on pricing to retain clients and continue gaining share as part of a long-term strategy for the bank. Another topic I wanted to hear your thoughts is that I understand you mentioned that there has been more competition in the acquiring segment, but if you could elaborate on if you expect further pricing and competitive pressure in the coming quarters or the base that we saw in this Q3 is already a good reference, at least for this part of the fee income line. Thank you very much.
Iván Lomelí: Thanks for your question, Ricardo, and good morning. We believe that loan growth is going to be maintained, and an important thing to stress is that we are also diversifying a lot the portfolios. As you can see in the figures, the biggest growth in terms of the portfolio is coming from small and medium companies. We will keep that growth level going forward. The type of small, medium companies that we target is actually bigger than a traditional PyME in Mexico. It is a bigger company. The other thing is that we believe that there is a lot of space there to grow based on the fact that we already have over 160,000 small and medium companies within our portfolio in the bank. Out of those, only 10% today are credit users. There is a 90% opportunity there to explode going forward.
Iván Lomelí: The other important issue is that they have been clients of ours on average for 7.3 years. We have a lot of data that we can use to actually be able to provide credit to those clients today that are not credit users. In that specific portfolio, we do not need to actually go on the open market to capture market share. In the corporate part, we are actually relying on different industry that the bank traditionally was not very active, and now we are pursuing it very strongly. One is all the manufacturing related to artificial intelligence and data centers. The other one is real estate industry, particularly on the logistic piece. The third part that we are seeing a lot more activity, is energy. Those three industries are growing above the average of the country, and we think that there is a lot of things to do there.
Iván Lomelí: In terms of further pressure, in terms of compressions on the margins in the acquiring business, we do believe that that is going to be happening, and that is going to be maintained. There is going to be a lot more competition going forward. Our strategy there is to keep as profitable as we can to maintain that product as a product offering to our clients. The main driver there is to compensate with other sources being three strategic ones. FIBA, which is the factoring and leasing business, international banking, and our trust service business. We are going to focus heavily on those three.
Ricardo Buchpiguel: That is clear. Thank you very much.
Operator: Our next question comes from the line of Yuri Fernandes. Please state your company name and ask your question.
Yuri Fernandes: Hey, guys. Thank you very much. Yuri Fernandes from JPMorgan. Thank you, Carlos, Iván, Joaquín, Rodrigo. Maybe for Iván, I think most of the trends appear to be positive, right? Loan growth, margin stabilizing, cost of risk coming down from here, even though a little bit higher than historical, but with more volumes. Operating leverage, many things going apparently in the right direction. I want to ask, what could be the main challenge, Iván? If there is something that concerns you, maybe the asset quality, as I saw many questions on this topic. Just trying to understand what is the big challenge for 2027? Maybe a more technical one, just on capital. I think given your growth pace, this matter, because nowadays your growth is above your ROE, your capital generation. I think the hope is that ROE, they move up.
Yuri Fernandes: But this quarter, your core capital remained stable, but with some help of your intangibles. There was a big drop on intangibles, maybe dropped by half. What happened there? Which kind of intangibles were you able to consume versus Q2? Just think about growth versus capital generation. If we should see maybe a little bit of less dividends to sustain the growth. Long story short on capital, what happened this quarter to help on capitalization and how to think ahead? Thank you.
Iván Lomelí: Thanks, Yuri, for your question. Our main challenges for 2027, or what could actually
Yuri Fernandes: Hello, can you hear me?
Operator: Please give us one minute to resolve a technical problem, and we'll be right back with you.
Iván Lomelí: Do you hear us, Yuri?
Yuri Fernandes: Yes, we can hear you, Iván.
Iván Lomelí: Oh, sorry. We have some communication problems here in the back. I am going to start again. What trends are positive in 2027? I think that what we can see that we control, we are very optimistic that growth is going to be maintained and that we are going to be delivering at least the growth of 1.2 times above the Mexican financial system. The things that could affect that and the main challenges will be essentially external issues more than internal ones. We do not foresee something major that could affect that become a reality. There are some tailwinds that can help us. One, again, is that if we see more volatility on the FX business, we will definitely benefit by that. Again, we are having a lot more clients transacting in our platform. The other is, as you all are aware, our ag portfolio is very significant.
Iván Lomelí: Based on the new FX, there is going to be a big benefit for our agro business clients in terms of exports. So that is going to help. Again, if the talks of the new agreement of the USMCA conclude in the near future, we see that also as a tailwind for 2027. Plan México is there. We hear new information every day about things that are being executed. There are some things there that are critical for the tailwind to happen. One is energy, and the second one is infrastructure and water. But if that help us, we also have a tailwind there. In terms of the intangible, I will ask Joaquín, our CFO, to respond.
Joaquín Domínguez: Hi. Hello, Yuri. What happened this quarter is that we used to maintain some investment as anticipated expenditures related with the buildings that we are in process in Monterrey, Guadalajara, and in our headquarter in León, Guanajuato. We had accounted that as anticipated expense, and we right now are accounting them as buildings in process. So when it was as an anticipated expenditure, was deducted from the capital, and right now it is not deducted, and that help us a little bit to improve the capitalization ratio.
Yuri Fernandes: No. Thank you, Joaquín. Just on the payout, given the fast pace of growth, any change on what should we expect here, given the growth and loans?
Iván Lomelí: No. We expect that to be maintained, Yuri. Again, I think that the example that we had in this last quarter absorbing MXN 60 billion in new assets and being able to increase our capital, it is a very strong example that this is going to be maintained going forward.
Yuri Fernandes: No, super clear. Can you just recall us the level that you feel comfortable, like 12% core capital, like 11.5%? You have a lot of capital today, so just we having a number in mind on how much the capital can go?
Iván Lomelí: No, we feel comfortable at 14% level. That is what our board has been asking us to maintain. We will keep that at this level, 14%.
Yuri Fernandes: Oh, perfect. Thank you very much, guys.
Operator: Our next question comes from the line of Jorge Perez. Please state your company name and ask your question.
Jorge Perez: Hi, Carlos, Iván, Joaquín, Rodrigo. Thank you very much for the opportunity to make question. I have two from my side. The first one is, when you said that you brought forward provisions on a using credit basis in some cases, could you clarify what you mean by that, since the coverage ratio didn't increase? Were these provisions actually necessary to cover a specific risk, or would the coverage ratio have declined if you hadn't brought them forward? My second question is in growth. You have mentioned a couple of times that the idea to grow at 1.2 times the system, but my doubt is, can you sustain this level of growth without having to compromise on risk or margins? Macro is improving, but it's not booming, tough competition. Banks want to grow in SME.
Jorge Perez: Just wondering, could you grow at this pace without sacrificing risk margins, or other parts of the business? Thank you.
Iván Lomelí: Hi, Jorge, and thanks for your question. In terms of the growth, the answer is yes, we believe that we can keep that momentum. I am going to put just an example. In the metropolitan region of Mexico City, we started, 4 years ago, having a market share of 1.6%, and we are now finishing this Q3 at 3.4%. Our fair share in that market, we believe that is going to be closer to 6%. So our growth opportunity in the Mexico City metropolitan area is there. We are actually executing that very strongly. That is happening also in Occidente, where we are also gaining market share. We believe that in the Occidente region, our fair share is about 10%. So there is a significant growth there. In the case of the North, the growth has been flat. That has been related particularly from some prepayments that we decided to obtain.
Iván Lomelí: Specifically on the states and municipalities portfolio, that it is not strategic for us. So we decided to let go those assets. If you take that out of the equation, actually, the growth in the Monterrey metropolitan area is growing strong. The second part is that we are focusing a lot of that growth in diversification, particularly in what we call the mid-market segment, which is not a small company, it is a bigger company. It is more like a small corporate company, where competition is a lot less. We feel very strongly in participating in this market. Actually, the cost of risk associated to that market is very similar to the corporate portfolio, and that also pervades the capacity to create principality with those clients. That means cash management, fees, FX, trust, leasing. So we are essentially the main bank on that segment. So we are focusing on that.
Iván Lomelí: On the charge-offs that we did in this quarter, were very few cases that we believe that they were going to deteriorate in the medium-term. We wanted to actually provision them quicker, because we see there a very clear possibility that it is going to take a lot more time to recover it. But again, the good news is that in terms of the stage 3 that we have in our books, is very well secured over 3 times. In the part of the write-offs, they are covered more than 7 times. In terms of the NPL formation, actually, it is falling. If you see, it peaked in Q2, and now in the Q3, it is coming down. So this is a good information about how we see it performing stronger and better in the quarters to come.
Jorge Perez: Perfect. Very clear. Thank you very much. Have a good day.
Operator: Our next question comes from the line of Federico Galassi. Please state your company name and ask your question.
Federico Galassi: Thank you, everyone. Federico Galassi from Rohatyn Group. Two question follow-ups. The first one is, you are talking about the provision for the next year is around 1%. This is more related with the growth in SMEs. You are more open to give credits. It is more related to regulations. The second question is related to the fiscal side. In the gold grace, the government is moving to some change next year on the fiscal side, in particular in the deductibility of OpEx. Anything that could change your effective tax rate for the next year? Thank you.
Iván Lomelí: Thanks, Federico, for your question. We see a sustainable cost of risk of 100 basis points. Actually, if you see 2026, and even with the provisions that we released, that had to be released because of regulatory issues, the cost of risk stands at 90 basis points. So, being this 100 base sustainable, we believe that we can keep this level of growth. This is, again, we want to be very vocal on it. The growth that we are obtaining in the market, it has not changed our risk acceptance criteria. So we remain very consistent of the assets that we are acquiring and will be very consistent going forward in 2027 and the years to come. In terms of the other question, I will ask Joaquín to answer.
Joaquín Domínguez: Hi, Federico. Nice to hear you.
Federico Galassi: Okay.
Joaquín Domínguez: Yes, we are estimating that we could have a negative impact, about MXN 100 million, but it will depend on the final approval and what treatment will be given to the interest cost. But yes, in fact, it will be a negative impact for the next year. But we feel comfortable that we will be able to absorb that impact with the positive results.
Federico Galassi: Perfect. Thank you so much.
Operator: Our next question comes from the line of Andres Soto. Please state your company name and ask your question.
Andres Soto: Hello, everyone. Carlos, Joaquín, thank you. This is Andres Soto from Santander. Most of my questions have been already answered, but I wanted to do a couple of follow-ups. The first one is on the idiosyncratic cases that you were referring to this quarter. I would like to get a sense of which industries, which geographies are those, because we have heard similar comments from other banks, and it will be interesting to see what is going on at the broader market in terms of asset quality in Mexico. Also, if you can give us a sense of what is the size of the exposure and how much have you covered after the provisioning effort that you did this quarter.
Iván Lomelí: Hi, Andres. Good morning, and thank you for your question. This is Iván. They are not essentially concentrated in specific industries. There is a little bit of everything. The biggest cases are essentially on the ag business and on the construction, particularly housing. These are essentially bridge loans that we financed, and it has taken more time to actually be absorbed by the market. We have strong security in place. Most of these projects have been already concluded, so they are not already projects. They are essentially projects that have been concluded, and we are waiting for the market to return to be able to absorb this type of projects for the housing. In terms of the agro, this was affected essentially because of the FX position. These were export companies that, with an exchange rate that went as low as we saw last quarter, they struggle a lot.
Iván Lomelí: We see that going favorably in the near future based on the new FX levels that we see. This is not companies that are going bankrupt. These are companies that are struggling in terms of their margins, and with the new FX in place, that is going to benefit them to recover in the medium term. We do not see that as a major concern, again, because that portfolio is heavily secured. Our level of security of those stage 3 is above 3 times. We feel comfortable that that is going to be recovered in the medium term.
Andres Soto: Thank you, Iván. That is very helpful. My next follow-up is regarding the growth, the new customers that you are onboarding. I understand that they are sort of middle-market clients. Is there any difference in terms of the type of collaterals that you get with those clients, or in that sense, it is similar to a profile of the existing BanBajío clients?
Iván Lomelí: On the corporate portfolio, we are bringing this year, 700 new borrowers to the portfolio. This is in addition to the mid-market new borrowing relationships that we have. The level of security on that portfolio, it is actually higher quality collateral that we have on the corporate portfolio. There, we rely a lot on real estate and also in development banks guarantees that provides you with security up to 40% to 50% plus the security. It is very unlikely that we will provide financing to this particular portfolio without any security. It is highly secure.
Andres Soto: Understood. My last follow-up is, when you were laying out the scenario for 2027, what level of interest rate are you assuming? Are you considering a stability or any movements in terms of the Banxico rate?
Iván Lomelí: 6.5 stable during 2027.
Andres Soto: Perfect. That is all. Thank you very much.
Iván Lomelí: Thank you.
Operator: Our next question comes from the line of Ernesto. Please state your company name and ask your question.
Ernesto Gabilondo: Thank you. Ernesto Gabilondo from Bank of America. Again, sorry, just a last question on taxes. The other banks mentioned in the conference calls the possibility of, again, lower tax deductions for companies and the banks. Just wanted to hear your thoughts on what are you seeing, and what should be the impact for the effective tax rate?
Joaquín Domínguez: Hi. Hello. What we are seeing in addition to those changes already that were published last year in terms of IPAB deduction and this year about the gap in terms of how much can we deduct. In addition of that, what we are seeing is that the Ministry of Finance are very strict in terms of the auditing the last years. So they have a position, a very strong position in terms of trying to recover the most they can, even in some cases or in most of cases, it is not precisely the kind of observation they are doing. They are trying to press banks in order that the banks can negotiate a payment of taxes. So we are very compliant with the rules in terms of taxation. So we do not see that we have to recognize an important amount of payment of taxes due to pressure we are receiving.
Joaquín Domínguez: We feel comfortable that we have a very precise accountability of taxes. But anyway, the pressure is there.
Ernesto Gabilondo: Thank you very much, Joaquín.
Operator: Thank you. We have not received any further questions at this point. I would now like to hand the call back over for some closing remarks.
Iván Lomelí: Thank you very much to everyone for joining us today. We remain available to address any follow-up questions via email and any further media requests. We look forward to speaking to you again in early 2027 when we release our Q4 results. Thank you very much and have a nice day.
Operator: Goodbye
